[This post is written and copyrighted by FIRE Finance (http://firefinance.blogspot.com).]

One gentleman from our audience has voiced a serious concern in response to our post titled "Credit Score - Myths & Facts." Mr. Minimum Wage has confided a bitter truth of his life. In his own words:

"My credit went into the tank due to an extended uninsured illness. I have two adverse credit items that won't go away. So now I can't get a credit card, I can't afford to insure a car, I can't get a better job, and if I had to move, I might end up homeless.

I wonder how many people are being "ghettoized" by poor credit?wxotyi."

This apparently hopeless situation really struck a deep chord somewhere in our hearts. How can we help this person? Why should the system be so harsh? What would we have done in such a state?

True, we do not have all the information about his predicament. Yet there ought to be some way to rebuild his credit score and get him back on his feet. No system is perfect. But, we feel that any socio-economic system should have a way out for everyone who seems to have fallen away from its "acceptable states".

We researched for ways of getting out of an unfortunate situation like bankruptcy and rebuilding credit scores. Here is what we found.

How bad is it?

There is absolutely no need to panic. The whole world is impermanent, so is our credit history. It stays on our credit report for up to 10 years. That does not mean everything is dark for 10 years. By all means no. There is a ray of hope. As soon as the bankruptcy case is closed, with some planned actions we can slowly yet steadily build up our credit rating.

But first things first - How did we end up here?

Introspection

It is very important to look back, analyze and delve deep to figure out what led us to this situation. Probable causes may be:

Over spending - We must not compete with the Joneses. In the end it is us who shall suffer the consequences. Living below our means is a virtue worth cultivating. We should take pride in doing so.

Irresponsible handling of credit - Paying bills on time, knowing our credit limit and being aware of the finance rates are not very complicated things to achieve. We should definitely get some help if this is a problem.

Lack of an emergency fund - No one can predict a job loss or an accident. Every dime that we save for emergencies goes a long way in taking care of us during unfortunate situations.

Medical costs - In US it can be sky-high. Unlike Canada, Uncle Sam does not care for us in this regard. It is our responsibility to take care of our health. In case we do not have any medical insurance, a practical measure would be to purchase a reasonable yet affordable medical insurance.

Cure

Now we come to some ways for meticulously rebuilding our credit scores. Based on our research, here is what we can do if we ever find ourselves in such a frustrating condition:

Scrutinize the reports. Almost always there would be some open and delinquent accounts which are in fact closed or their dues have been settled. We should call up credit bureaus and let them know about the latest status. If necessary, we may send relevant documents to prove the same.

Obtain a secured credit card. This will help reestablish revolving credit. Our first credit card was a prepaid secured card with a limit of $500 from Wells Fargo. After about a year we requested them to convert it to an unsecured one. They agreed after reviewing our account. We have seen scam websites which spread incorrect information about recovering from a bankruptcy. For instance some of these sites preach that a secured credit card is a bad thing! Not it is not. We can vouch for it since we have gone through the process. However there are a few things to be kept in mind when we get a secured credit card:

Shop for a secured credit card which has no (or low) annual fee and no application fee

Make sure that the credit card company reports to all the three credit reporting bureaus

After a certain time period (about a year or so) the card should be convertible to an unsecured one

Never max out the secured credit card

Pay the entire bill (due), on time, each month

For installment credit: Only if it is extremely necessary, we may take loans (auto, student, mortgage, etc) and handle them responsibly. Making the due payments on time, every time, is highly advisable under these circumstances.

Track our earnings and expenses. It also pays off to prepare a budget and stick to it. This can be done simply in the old fashioned way! Yes with a notebook and a pen. If we can afford technology, then we could use a spreadsheet from Microsoft or Open Office. However, all bills or receipts should be saved and recorded diligently else even spreadsheets cannot help us.

We sincerely hope that Mr. Minimum Wage is able to bootstrap his credit rating and personal finances very soon. Good Luck to him!

Our efforts would be worthwhile if any of the information that we have provided really helped Mr. Minimum Wage in his credit recovery process. So we would humbly request Mr. Minimum Wage to kindly let us know how it all went. There is no end to learning and we are looking forward to learn from your experiences in real life! In addition, it would also help fellow souls in a similar boat.If our site interests you, please extend your support by subscribing to our feed. This will help us deliver our stories to your feed reader where you can read it with pleasure in your own sweet leisure.

Our esteemed readers may send in their questions (if any) by emailing us at firegetters@gmail.com. We will try our best to research and address them.

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Great blog. I really liked it. I have also created a lens in same niche. This is my first time, hope u guys like it. Basically a debt consolidation loan takes over on other loans that an individual or business incurred in the past years. A new agreement is formulated and the debtor is allowed to repay the loan under new conditions. Most debt consolidation even allow the loan repayments to start at a later date so that the debtor may be in a better financial situation and get enough time to start preparing necessary repayment schemes.

minimum wage
said...

Obviously I didn't go into any detail in my earlier post, but here I'll add that my two credit problems cited previously are "sticky" items and the "10 year" clock won't start until they are resolved. One is a tax lien and the other is a creditor judgment; I cannot resolve either on a minimum wage income. The judgment will expire soon but can be renewed and I assume this will happen. (If it is not renewed, is will drop off my credit report.) It will also go away under a bankruptcy, but I also have a lot of student loan debt that even bankruptcy won't cure. Between my student loan debt and an aggressive creditor, I am paying almost $300 per month, which is why I cannot go back to school or save up any money.

FIRE Finance
said...

Mr. Min Wage, we thank you for letting us know more details about your credit's current state. We are researching your case. Shall publish once we are done.

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